 Private markets versus private equity Sit that wrong with the y'all. I'm in private equity versus public equities I said private market versus that's a private market versus private equity. So which were the same thing So anyway, some people called the private market some people called it private equity Some people called alternative markets all sorts of thing in this episode We're gonna talk about what is the difference between private equity and public equity and what exactly does it mean But ladies and gentlemen, if you haven't done so already, please go ahead and make sure you hit that like to strive Common share button and it's always Ladies join I don't have a lot of time and I definitely you guys and girls have a lot of time So we're gonna jump straight into it So ladies and gentlemen, you probably haven't seen me around a whole lot like you used to When I was more active and the large reasons that of me working into the private markets private equity markets private markets right when you work into the private markets when you're working to private equity you start to get certain things as You have more compliance things you have to be aware of Prime example is called a private markets for their reason. It's supposed to remain private These are private companies private sophisticated investors things that are not known to the public Or they shouldn't be known to the public So now on the public market are the public equities these are things you heard of every single day Google Amazon Facebook Walmart I Think it was a top some of the top names. I could think I'll talk my head Apple things You can think of every day Netflix companies you trade every single day with money that you have now In the public market the public market means that anybody can go out there and buy it In the private market, it means that only certain people can buy it But that's what today's episode is going to be about What's the difference between the public equity market and the private equity market? The first thing is how money is raised when companies raise money They got really two ways it boils down to where they can raise it either they're going to raise debt or they can raise Equity and when you say I'm going to raise debt That is when you are That is when you go out and go get a loan for for example You may go get a loan or you may issue a bond, right? You may say hey, hey bank Let me borrow one point five million dollars. So I can go purchase a particular company That one point five billion that one point five million dollars That could be money that you can utilize to turn around and go and purchase the company Now the person that are the company that loan you at one point five million dollars They may loan it to you at a ten percent interest rate. So in return They want their one point five with ten percent interest rate bank. They don't care the company goes under over Company does well doesn't do well. They just want their one point five With the interest now on a good on the other side, you can issue a bond you could say hey I'm issuing bonds in my company so I can raise capital to go out and buy a company a quasi Company X Y Z Maybe Let's say you maybe gonna purchase a McDonald's or something like that or whatever you're gonna purchase So you're gonna say hey, I'm gonna give you I'm gonna issue out Bonds and I'm gonna put a coupon on a five percent and that five percent. I'm gonna turn around and I'm gonna Purchase this company So you as a bond if you purchase a bond for me, you're gonna give me a hundred dollars a day I'm gonna give you your hundred dollars back plus five percent at maturity and let's say five year five-year bond or whatever That's another way you're raising debt Now on the other side that we say you can do something called raising equity What does raising equity mean and how is that different raising debt? Raising equity is very risky for an investor I'm an investor side now. Let's take that same scenario instead of going to the bank saying let me borrow 1.5 million dollars or Instead of issuing 1.5 million dollars of debt I'm going to say hey guys. I'm going to write up Investment proposal and I'm going to say hey you want to make an investment inside of my company I'm going to sell an issue shares in my company now once I issue these shares you can take these shares and you can go out and I'm going to issue these shares and now you own a portion of my company now My company is going to go out and we're going to purchase a McDonald's whatever your strategy is and If the value of this share goes up you can in turn sell it to someone else sell it back to me things like that, right? Same thing you see in the public markets When you're looking at companies on the public market when you go in and you buy that Uber stock Netflix stock Amazon stock whatever stock you go out and buy these are things that are coming from the public market Companies this is how they raise money they go out the issue stock you go out you buy the stock They in turn take the money and bill research and development bill a new logo. Whatever they're going to do To make company company does well value of company rises. You as a shareholder The value of stock rises company doesn't do so well the value of your stock declines Notice the private debt people they had no equity in the company nor did they care what was going on with the company I mean a low key care. They just want to know you're doing good enough to be able to pay me back with interest That's all the debt raiser. We're doing Versus on the private equity side when someone has equity they have a position as shareholder the company They're taking a larger risk because a company can go bankrupt at any time They're hoping that you figure this thing out and become the next big 4,500 company Now Next thing is liquidity when you look at liquidity of a company This is the difference between private equity and private debt. It's the liquidity market Prince. What do you mean by liquidity? Liquidity is your ability to get your money out of an investment For prime example, you can buy Apple at 5 o'clock. You can buy a hundred shares of Apple at 9 o'clock or 9 30 in the morning on the East Coast and At 940 sell them, right? Very liquid market Same thing with Amazon Facebook most publicly traded company that a large blue chip mid-camp and even majority of small caps Is once you start to get down to those penny stocks is where the liquidity and the volume Starts to really kind of drop a little bit So liquidity how fast can I get out of this investment? Prime example Let's go back to that scenario. I gave you before I told you hey I'm gonna give you I'm gonna issue debt, right? And when I issue this debt, I'm going to raise money In turn to go about be able to buy this McDonald's right Now when I go and do this This in return when I raise one to go purchase this McDonald's Let's say if you decide six months later Prince, you know what? I Know you gave me a five-year bond. I Want out of this investment how easy it is for you to get out For prime example for you to walk into your checking account You to put money in take money out buy something with it very liquid goes through very fast Versus if you have money into a CD CD you got to go through a couple steps to get the money You get into private equity. You got to go to a good bit of steps You have to go find somebody else hopefully in the secondary market. They may want to purchase your stocks, right? This is what you're going to do ladies and gentlemen These are issues you're going to have when you are building things out, right? When you're looking at liquidity in the public equity markets Public markets liquidity is pretty fresh and easy You can go buy Walmart sell Walmart. You don't have to go find a buyer It's pretty easy to buy something and get in and out of it pretty easy Versus on the public act on the private equity markets It's a little bit tougher if you go out here and invest into a private company You go ahead a sandwich shop a private sandwich shop that was starting up you purchase shares in it You got these shares now you want to sell it so you can go buy I don't know a Lamborghini or whatever you have to go find somebody in that market to be able to sell those things too, right? That's the difference between the public market and the public market liquidity That's another thing the first thing we discussed is how they raise their money. Either you're gonna raise money through what the two ways You got it right debt and equity The second thing is liquidity. You have more liquid in the public market. It's a bigger market Well, that's kind of changing in recent years as the public as a private market is becoming bigger and bigger and bigger The third thing is You have to be in an accredited investor versus just been a public investor Anybody that's over the age of 18. I think it's 18 might be even 17 nowadays But in most in most country we're not most country, but here in America. It's like 18 years old You have a social security number. You're a citizen. You can open up Stock exchange account. You can download app these days, whatever Purchase you some stocks sell you some stocks, right? easy day Versus if you say hey, I want to get into the pub the private markets Either you have the financial advisor that could get you into the private markets or you Know somebody can get you to the private markets. It's something that I need you So the private market it's a little bit harder and tougher to get into and you have to be an accredited investor I didn't I should have known this before the show But I don't want to put out bad information But if I'm not mistaken if you're single you have to make 250 I think it's about $250,000 a year over the last two years or if you're married couple $300,000 a year over the last two three years and you're going to have to Run those and you have to do it for the last two years I think you have to have like a million dollars or two million dollars in network not including your primary residence Something of that nature you got to be pretty well off They want to make sure you are sophisticated enough to be able to make an investment Or if you hold certain licenses if you're a licensed advisor if you're a registered investment advisory You are allowed to make Investments into the private market The big thing is the public the government wants to protect the public from anybody just jumping into something and saying whoa I didn't know I could do that You can see this happen where the government is trying to protect the people in the public by saying hey you can no longer purchase this doc or body stock because of What's going on right when we had the Enron scandal if you don't remember these are companies that came out and put out a Bunch of fraudulent reports stole a bunch of money from the people in the public So the government is trying to protect the people in the public who are just everyday people who are trying to invest their money to get a little bit of Get a little bit to do a little bit better get a little further ahead. It's what I was trying to say there Versus when you're looking at people who do not make those investments When you're looking at some people in the private markets is way the market is illiquid And we just talked about liquidity. It's not that much liquidity there Once you purchase something you may have to hold on to it for a while It may have all type of terms into it So the government wants to make sure you're not using your last dollar to get into this investment and that you also If you have these type of networks, you're a little bit more sophisticated than the average person So the public markets anybody can get into the private markets It's more sophisticated and it's set aside for the more accredited investor, right? So that's the second thing you have to have to The third thing I'm sorry the fourth thing the fourth thing is being your distribution Now what I'm gonna do before I get into distribution I'm gonna do a quick recap We're gonna take a break and then we're gonna come back and talk about other three So the first thing I told you ladies and gentlemen, how does it raise money? Do you raise money be a debt or do you raise money whether given our equity? Give it raise the money through debt is you are issuing a bond Or you may get money from a bank and the bank lets you borrow the money at an interest rates to pay I'm an interest rate to pay in bank versus if you raise debt Once you now, that's what raises debt But if you are doing it with equity, this is you are now issuing our stocks And you're giving people portion of your company either way. This is the way companies raise capital The second thing is liquidity. We talked about the public market is very liquid. The private market is very illiquid number four Accredited investors versus non accredited investors, right? An accredited investor is someone who's going out to go out and make purchases, right? I'm accredited. I want to go out. I want to make some purchases, you know, things like that Sophisticated investors people who are not accredited those are ones who participate in the public market. The public market is open to everybody Private market is only open to accredited investors before a company becomes public. It's usually 90% of time private Private means just that it's just a regular company. That's the side like you go out You decide to start drew a ice cream shop. You are a private company. You decide to raise debt You decide to issue stocks issue bonds take out loans to your private company, right? One day when you decide the IPO, which is an initial public offering, you know When people go to New York Stock Exchange and they ring the bell and go ding ding ding and everybody said, oh Everybody's wrong about this new company that's coming on the market. That is the public market That's when you make your initial public offering your initial public offering my friend is when a company now is Available to the public anybody can go out and buy a public to trade a company a public to trade a company Could be something like Amazon or Facebook or Google or Apple Those are publicly traded companies of McDonald's household names that are publicly traded I'm trying to think of a company like Chick-fil-A Chick-fil-A is not a public to trade a company to the best of my knowledge unless it's owned by a group and that group Owns Chick-fil-A or something like that, but Chick-fil-A itself It's not a publicly traded company subway who heard of subway sandwiches I've never seen subway on a publicly traded market, right? So those are privately held companies. That's a big difference a big difference So guess what you can make investments into the public market, which is open to everybody But you can't not everybody can make investments into the private market Now we discussed earlier about how companies number one How money is raised in the private market in the public market number two We talked about liquidity and number three we talked about being accredited right number four How do you get paid in the private market? You're paid by distributions, right? You go in you Commit your capital you go in a company may come to you and say hey We're raising a hundred million dollars and once we get this hundred million dollars We're gonna go out and we're gonna go buy all of the liquor stores And marijuana stores in Colorado that might be their strategy all the small mom-and-pop Marijuana stores in Colorado. We're gonna purchase them all and once we purchase them all we're gonna turn around and sell them all I mean they're gonna turn around and Bring them together and then they're going to sell them and do whatever they want to do with them, right? So they may go out to sophisticated investors. They may hit up family offices. They may discuss family offices and say hey They may go to family offices and say the family offices could be something like Someone like myself. I'm a registered investment advisory They could go to them and say hey, you know what we want to raise money from you because we need to raise this hundred million dollars To go out and make these purchases So when you are as an investor you say hey, you commit capital you are a limited partner You commit capital of ten million dollars. Let's say I'm gonna give ten million dollars to this hundred million dollar fund You write a check for not I'm sorry. You don't write a check you sign an obligation. I'm gonna give you ten million dollars, right? So now whenever that fund needs money, it's gonna call you. They're gonna say hey Prince We're getting ready to go buy all these marijuana shops. We need three million dollars from you You're like, okay, no problem because I committed ten million dollars to you you write a check for three million dollars You take that three million dollars you in return go and do what? Right, you take that three million dollars In return you go and purchase companies, right? That fund goes out and purchase companies once it gets done with the money it distributes the money back to you, right? They may call and ask you for more money It may do things like that So I want to go too deep into it, but you're paid by distribution versus stocks How do you make money from a stock once you purchase that stock? You hope the value of the stock continues to grow and goes higher. I purchased it for three hundred dollars Hopefully it goes on up to four hundred dollars five hundred dollars may pay me a little dividend two totally different differences between the public market and the private market itself Number five a big reason why I know is a lot of companies stay public. I'm in private. I'm sorry Because you know companies start out private. You just minding your business before they go public It's a big R word Regulations you got to be regulated You go in you may have regulations to say hey when you are a publicly traded company and you're taking money from the public You have to have regulations that your paperwork. You have to turn in every day every time you decide to look to the left Look to the right. You need to turn in paperwork. I'm hypothetically speaking, but you have to do 10k reports I don't know all the reports name 10k reports Which are any reports 10k reports what accordingly reports if your board decides to issue a dividend you have to issue our report You know if your board decides to fire someone someone leaves the company Someone inside or buys more shares or anything like that. You have to do so much reporting You your companies are going over you as a fine to come Why because you have ability to take money from innocent people from the public Who are expecting you're doing the right thing? So you have the governor agency of the sec the security and exchange commission That's making sure you're just not Taking money from people and not doing anything with it Which has been done plenty times in the past. This is why we have a sec sec was formed out in golf into a tiring year, but sec was formed after the great depression It was one of those things that we can bestow the trust back into the market Because you have so many companies that come in and i'm pretty sure there's some out there now They come in they don't do anything. They just do something to raise money from the public Take innocent people's money from the public and then go out and do god knows what Burning me off, right? So the sec is that governing body. They don't go in and make sure every company is a good company. They just make sure The company has is legal Is it reporting is it reporting its financials is its financials accurate have the financials But they don't make sure the accuracy of finances don't Miss quote me on that they make sure you are reporting the finances They make sure you're doing the audits all those type of things, right? So that's the big thing that you're doing with the public market there and the private market itself So when you're looking at their private market people are wondering and they'll you know, um When you're discussing and looking at your private market, that's what people think things that people were taking to consideration Is being registered by the sec all the regulations you got to do versus in a private market It's a little bit more private only sophisticated investors can be with you But you are regulated by the 1940s investment advisors act So you still have regulations you have to go by it's pretty heavily regulated But it's nowhere near like the public market, right? So regulations are a little bit more tougher in the public market because It's seen as you're taking you you could be potentially potentially taking money from investors number six public markets When you purchase Netflix, I don't know what's going to happen with Netflix one day I don't know I don't know what's going to happen with Netflix one day. What's going to happen with Netflix one day? Um One day it'll grow up and it'll become a big company or it may not. I don't know what's going to happen There's really no exit strategy in the public market unless you are buying a company Make an investment so you're probably going to sell it one day as an investor But it's not really big exit strategies in the private market the exit strategies annotated at the beginning They're saying hey, we're going to go purchase this McDonald's This McDonald's is going to cost us a million dollars and it's generating five million dollars in cash flow We're going to take that five million dollars in cash flow. We're going to grow that cash flow from five million from i'm sorry 500,000 dollars. We're going to grow it from 500,000 dollars all the way up to 800,000 dollars And once we grow up to 800,000 dollars, we are in return going to do what? Take it from 800,000 dollars and we're in return are going to do what ladies and gentlemen Take the money from 800,000 dollars and we're going to sell this company We're going to grow it from 10 employees to 25 employees and we're going to sell this company So in the private world people go with the exit in the beginning and their mindset They're like we're going to take this McDonald's and we're going to buy three more McDonald's and we're going to close one of them And we're going to do xyz and that's how we're going to make things happen, right? So that's what companies look at as they go forward Right companies look at as they go forward they look at it and say hey, we can move at any time Right and what I mean by moving at any time is When we're going to take this company and we're going to build this company and once this company grows we're going to sell it Private markets. That's what they do. They come in with the exit strategy in mind in the beginning So let's do a quick wrap up before we get out of here We talked about it the difference between the private markets companies start off private they grow Facebook starts off in a harvard room a dorm room The idea grows they get investors behind it. They they acquire debt. They use cash Whatever they do they raise the company now it's this big social It's this big website that everybody's using has a million Followers and users on the page and return now. You decide you want to go public Now you've become to the public market. Now you're raising money from the public You're more liquid people can get in and out of your facebook stock with ease Back when facebook was working in somebody's harvard Room, nobody probably knew it. Nobody knew how to get money behind it. People probably weren't sold number three, you got to look at the way that it Anybody could invest into facebook today, but back when it wasn't in a harvard bedroom It was hard to invest into Number four You're talking about how you make your money. You got to get distributions when you're in the private market in the public market You're hoping that stock goes up over time and pays you a nice dividend number five The public market is more heavily regulated because it has Investors that are not as sophisticated that they are in the private private market number six extra strategies private equity moves in with the extra strategy in mind in the beginning Versus the In the in the public markets, you look at facebook people just purchased it They hold on to it. Hopefully does great things into the future Ladies and gentlemen, hopefully you got a good introduction into the private markets and public markets Um I've been in the private markets myself to give you a little history for about their last year That's why I haven't been making a lot of content able to come to you guys and girls Like I usually would like to and want to do Because I've signed a lot of NDAs non disclosure agreements if you're not familiar with NDAs Things I can't speak about and talk about once while i'm doing my internship But once my internships in the private markets are said and done Then I can speak more about uh things into the public All right Well, ladies and gentlemen, that's going to be my time as always y'all know my name is prince dykes I'm the prince of investment until the next video podcast cartoon Or whatever else crazy you see me doing around the globe Make sure you go check out my book series made exactly they made perfect gifts birthday gifts They make good birthday gifts. They make good christmas gifts for your kids nieces nephews grandchildren In your next door neighbor kids the kids at your local church the kids at the ymca and the boys and girls club teaching kids about investing credit insurance Wesley learns to invest what's the learns about credit and what's the learns about insurance Until the next video podcast cartoon or what you see me doing around the globe. Please be safe. I'm out and thank you Thank you so much for watching think tech hawaii If you like what we do, please click the like and subscribe button on youtube You can also follow us on facebook instagram and linkedin Check out our website think tech hawaii.com Mahalo